FERS Transfer Handbook: Making Your Decision
The decision about your retirement plan normally comes when you have just begun a new job and wouldn't otherwise have thought about all of this. You may be uncomfortable trying to consider a lot of details about a retirement plan now, especially if retirement is far away for you.
Rather than sorting through every detail of how the two plans are structured, perhaps it would be easier to think about what your future career plans are. Consider whether or not you think you'll stay with the Federal Government for the rest of your career, and, if you are married, what your spouse's career plans are.
This section will help you consider some important factors about yourself and your work history that may make either CSRS or FERS clearly a better choice for you.
The factors are separated into groups according to your current age, how far from retirement you are now, and special situations. You may want to read all four groups, but:
After reading this section, you should know which plan you want to choose.
Choosing Based on When You Expect to Retire
You Are Close to Retirement Age
If you are within 10 years of retiring from the Federal Government, things are probably pretty clear for you.
You may have already earned most of your retirement benefit under CSRS. You will take that benefit, including the full CSRS cost-of-living-adjustment (COLA), with you if you transfer to FERS. You already know a lot about your life and your career: things like your marital status, your spouse's work history, your non-Federal work history. You may also have some idea about what you want to do after you retire from the Government: turn your hobby into a business, start a second career, or concentrate on your golf game.
The fact that you know much more about yourself and your career now than you did 10 or 15 years ago, makes the choice much clearer.
CSRS Is Probably Better For You If:
- You expect to retire from the Federal Government at age 55 with 30 years of service.
The CSRS retirement benefit, with its generous annuity formula and full cost-of-living-adjustment (COLA), is generally better than the FERS retirement benefit under these circumstances. CSRS pays COLA's immediately after you retire, regardless of age. FERS doesn't pay a COLA until age 62. Then it's generally 1% less than the Consumer Price Index inflation rate.
- If you transfer to FERS, you get COLA's under CSRS rules for any portion of your annuity that is computed under CSRS rules and adjustments based on FERS rules for the part of your annuity that is computed under FERS rules.
Example: If you transfer to FERS after 25 years of CSRS service, work 5 years, and retire at age 55, you will receive full COLA's immediately under CSRS rules for your CSRS service. However, you will receive no COLA for your 5 years of FERS service until age 62, and when you begin receiving a COLA, it generally will be 1% less than the increase in the cost of living.
- Earning additional Social Security credits isn't important to you. It may not be important because you already have enough Social Security credits to qualify for a benefit, or because you plan to get enough credits by working after you "retire" from the Government, or because you have few or no Social Security credits already and no expectation of ever receiving a Social Security benefit from this service.
However, if you have CSRS Offset coverage, you will earn Social Security credits whether you transfer to FERS or not.
- You have a substantial number of years of CSRS Offset. You probably don't want these years of service treated under FERS rules at 1% of your high-3 instead of 2% under CSRS.
FERS Is Probably Better For You If:
- You are uncertain whether you will stay with the Federal Government until you are eligible to retire.
Switching to FERS allows you to be earning Social Security coverage that continues to build if you leave Government for other employment.
- Your work history includes substantial (that is, 5 or more) years of Social Security coverage, but not the full 10 years (or 40 credits) of coverage generally required for Social Security benefits, and you're within 5 years of retiring under CSRS.
Joining FERS can allow you to get a return on the Social Security taxes you paid in the past. If you don't "lock up" your Social Security benefit by earning your 40 quarters either under FERS or elsewhere, you can lose whatever money you've paid in Social Security taxes.
- Your work history includes many years of substantial Social Security coverage, but not the 30 years required to avoid the windfall elimination provision.
Joining FERS can allow you to reduce the impact of the windfall elimination provision or avoid it entirely.
- You want to retire before age 60, but you won't have 30 years of service.
FERS is more flexible than CSRS. It allows you to take a reduced benefit as early as age 55 with as few as 10 years of service and there's no minimum period of FERS service required. If you join FERS, you can take advantage of this flexibility and begin to receive your retirement benefits, including the CSRS benefit that was transferred to FERS, earlier than you can under CSRS.
Your entire benefit, including the part earned under CSRS, will be reduced at the rate of 5% a year for each year you elect to receive benefits before age 62. Once you begin to receive it, the value of the CSRS portion of your benefit will be maintained because it will receive a full cost-of-living-adjustment. The portion of the benefit computed under FERS rules will not receive a cost-of-living-adjustment until you are age 62. Then the cost-of-living-adjustment will be 1% less than the inflation rate whenever inflation is 3% or more a year.
- You will have 30 years of service before your minimum retirement age (MRA) and you want to leave Federal service early. FERS gives you the flexibility to leave then. Later, at your MRA, you can start getting benefits.
- You plan to work to a fairly late retirement age.
FERS can provide more valuable benefits to those who plan to work until later ages, that is, age 65 or beyond. You will continue to receive Government contributions to your TSP account and until you withdraw it, earnings will continue to compound.
In addition, you continue adding to your basic benefit. Under CSRS, your annuity is limited to 80% of your high-3, (about 42 years of service). FERS does not have this cap.
A Special Note for Career Couples Near Retirement
The considerations outlined above apply to married couples as well as single individuals. But there is a special circumstance that may apply to married couples where both individuals had a career and only one member of the couple ("the Federal spouse") worked for the Government. Often the Federal spouse has little or no Social Security credit. In this case, he/she would normally qualify for a spousal benefit based on the non-Federal spouse's earned Social Security benefit. But the Social Security law contains a Public Pension Offset to reduce or eliminate Social Security spousal benefits for most Federal retirees (those receiving recurring retirement payments).
The Social Security law requires that, if the Federal spouse gets CSRS benefits after separating from a position not subject to Social Security, any Social Security spousal benefits otherwise payable to him/her will be offset by two-thirds of the CSRS benefit. In most cases, this eliminates the spousal benefits. This provision does not apply to people who were required by law to have Social Security coverage. Consequently, it does not apply to people who have CSRS Offset coverage.
If you have only CSRS coverage, the Public Pension Offset will not apply if you transfer and complete 5 years of service in FERS before retiring. You can still qualify for full Social Security spousal benefits even if you also receive a pension from employment not subject to Social Security (for example, CSRS service).
NOTE: During the original FERS open season in 1987, an employee could transfer to FERS, retire immediately, and avoid the Public Pension Offset. This rule only applied during the 1987 open season.
Remember that the spousal benefit is only paid if it is higher than the employee's own earned Social Security benefit. The Federal spouse who joins FERS earns Social Security credits. These will be added to any credits previously earned. Once enough quarters have been earned, the Federal spouse's own earned Social Security benefit will often be higher than the spousal benefit.
Also, if you are concerned about the survivor benefits that your retirement plan will provide, you should keep in mind that the FERS survivor rules will apply to all of your benefit -- even the CSRS part. This formula is less generous than the one used under CSRS.
You Are Far from Retirement Age
It's difficult to predict the future, and especially difficult to guess what might happen over the next 15 to 20 years or so. Most people who are about 20 years away from retiring don't know with any certainty whether or not they will actually retire from the Federal Government. If you are one of these people, FERS is probably the plan for you. Here's why:
- The Social Security and Thrift Savings Plan parts of FERS are both portable. If you leave Federal service, your new job will continue adding to your Social Security account. As for your Thrift Savings Plan account, you can transfer your funds (your contributions, Agency Matching contributions, and, if vested, the Agency Automatic (1%) Contributions) to an Individual Retirement Arrangement (IRA) or other eligible retirement plan. You can also leave your account balance in the Plan. While you may not continue to contribute after you leave Government service, your Thrift Savings Plan account balance will continue to accumulate earnings based on your investment decisions.
- While the value of the FERS Basic Benefit will decrease if you leave the Federal Government short of retirement, it will not decrease as much as the value of the CSRS benefit. This is because FERS gives you the flexibility to choose to receive a reduced benefit as soon as you reach the Minimum Retirement Age (age 55-57) with only 10 years of Government service. CSRS makes you wait until age 62.
Under both plans, the basic annuity benefits become fixed when you leave Government. Getting the benefit earlier under FERS may be important if inflation is reducing the value of the fixed benefit. Also, the FERS basic benefit costs you less (in 1998, .80% of pay versus 7.0% under CSRS), so less of your money is at risk.
Should you decide you want your money back, FERS will pay market rate interest on your contributions toward the Basic Benefit. CSRS pays no interest in most cases. However, you can pay back a CSRS refund and regain your service credit if you return to Federal service. FERS refunds cannot be repaid.
If you have CSRS Offset coverage, you will get the value of the CSRS annuity computation formula and cost-of-living-adjustment rules if you stay until retirement. However, if you don't stay until retirement, the more flexible FERS rules about when you can get your annuity may be important. In addition, under FERS you can take advantage of the government match for your TSP account and the opportunity to put more of your pay into the account.
In conclusion, the flexibility and portability FERS offers is important in cases where the future is unclear or uncertain. This flexibility and portability come at the price of slightly lower benefits for the same investment on your part if you do stay in the Federal service until retirement. Only with Thrift Savings Plan participation are the benefits comparable. Investing a higher percentage of your pay in the Thrift Savings Plan could result in your benefits exceeding those that you would have earned under CSRS.
So, if you feel sure that you will retire from the Federal Government in 20 years and be under age 62, you may want to stay with CSRS. There is one exception: low-salaried employees who are able to work long enough (30 years) under Social Security to avoid the Windfall Elimination Provision will benefit from the fact that the Social Security benefit formula favors people with low career earnings. If you are low-salaried and expect to retire from the Government, you should consider FERS with its Social Security coverage, if you can avoid the Windfall Elimination Provision.
So, if you're not sure about the next 15 to 20 years, FERS may be a better choice for you.
You Are in Between -- Neither Close to Retirement nor Far from It
If you're about 15 years away from retiring, you may or may not be sure of your future work plans. If you're sure about your plans and know whether or not they include retiring from Federal service, you're probably ready to decide based on what you've read so far. You know FERS portability and flexibility are real pluses if your career includes both Federal and non-Federal service, and especially if you don't plan to retire from a Federal position. You also know that CSRS can provide better benefits if you can retire from the Federal Government before age 62.
If you haven't made your decision based on what you've read so far, keep reading. Maybe this discussion will help clarify things for you.
The Trade-offs
With CSRS, you have a plan that offers superior retirement benefits, if you're able to take advantage of them. With FERS, you get more flexibility and portability, but you may have to give up a little in the way of benefits, or pay more in contributions while you're working, if you want to reach the same benefit level.
The Thrift Savings Plan under FERS is very attractive if you're in mid-career and can contribute to your Thrift account. If you can contribute 5% of your basic pay each pay period, the Agency Matching Contributions plus the Agency Automatic (1%) Contributions you receive will add to your account an amount equal to another 5% of your basic pay for that pay period. This, coupled with the effect of compounding, may provide a significant source of retirement income. In fact, this kind of Thrift Savings Plan account balance, when added to your FERS Basic Benefit and Social Security payments, can easily produce a FERS benefit that exceeds the CSRS benefit.
If you switch to FERS and can make contributions to your Thrift Savings Plan account, you will gain the portability of the Social Security and Thrift Savings Plan portions of FERS. And you will gain the flexibility to choose to receive benefits earlier with fewer years of service. You will minimize your investment in CSRS, which offers no portability.
So, switching to FERS involves some trade-offs. For the advantages of lower risks and equal or better benefits, you have to make greater contributions. In fact, you may need to contribute more of your pay each pay period than you would under CSRS because some FERS employees (especially those with higher incomes) must contribute more in order to receive equivalent retirement benefits to those received by CSRS employees.
If you have little or no previous employment that counts as years of "substantial coverage" under Social Security you should think about whether you will earn enough of a benefit under Social Security to avoid or minimize the impact of the Windfall Elimination Provision.
On the other hand, if transferring will give you substantial Social Security coverage by retirement, FERS offers an opportunity to provide a Social Security benefit for your spouse.
If you are married and your spouse will not be eligible for his/her own Social Security benefit or for a retirement benefit other than Social Security, FERS benefits can come close to CSRS benefits even if you can't contribute 5% of pay to the Thrift Savings Plan. This is because your spouse can receive a Social Security spousal benefit. This makes FERS more attractive. But, you may still need to make contributions to the Thrift Savings Plan if you want your total benefit to equal what you could have earned under CSRS. Again, there's a trade-off involved. FERS generally costs you more if you want to match the CSRS benefit level, but FERS is more portable and more flexible.
If you now have CSRS Offset coverage, you have the benefits of the good CSRS benefit formula and cost-of-living adjustments, as well as the advantage of Social Security coverage. However, there is an offset of your CSRS benefit by the amount of Social Security attributed to your CSRS Offset Service at 62. This is an excellent package if you retire from the Federal Government. However, if you do not expect to retire from the government, the more flexible FERS rules about when you can receive your benefits may be better for you. In addition, you can take advantage of the Thrift Savings Plan Government match and Agency 1% Automatic Contribution and the ability to contribute more to your account.
FERS Flexibility
FERS allows you to begin getting benefits at an earlier age with fewer years of service. This can be an important advantage, depending on your future plans.
Keep in mind that FERS lets you start getting both the benefit you earned under the CSRS formula plus the annuity you earn under FERS with as few as 10 years of service when you reach the Minimum Retirement Age (55-57, depending on when you were born). Your benefit will be reduced 5% a year for each year you choose to receive benefits before you are age 62. Under CSRS, though, you can't receive any benefits until age 62 if you leave the Federal Government without retiring.
This kind of flexibility is important if you think you may leave the Federal service before retiring. It's also important if you would have to work until age 60 or 62 under CSRS rules, but would rather leave earlier.
Some Important Cautions
There are some factors that can make FERS clearly a better choice for you. There are other factors that can mean switching to FERS is not the best thing for you to do. Although you can't predict the future, use what you know now to make the best decision you can. This section contains some information you should consider before you make your final decision.
If You Are Unable to Meet Social Security Eligibility Requirements
In general, switching to FERS can be a mistake if you are not able to earn the 10 years or 40 credits of Social Security coverage that will allow you to receive a Social Security benefit. Here's what could happen:
Example: Say you're close to retiring and you switch to FERS. You've never worked in the private sector, so you've earned no Social Security credits. Six years after switching, you decide to retire.
You will make a mistake by not thinking ahead about how much longer you wanted to work when you switch to FERS. You cannot receive a Social Security benefit unless you've earned the required years of coverage. In most cases, 10 years are required. So, you've lost one of the three parts of your FERS benefit.
Also, if you do not qualify for a benefit, the percentage of salary that you pay in for Social Security taxes is simply lost.
CSRS, then, normally is a better choice if you will not be able to earn enough years of Social Security coverage to qualify for that portion of your FERS benefit. In addition, even if you will qualify for a Social Security benefit, you need to look at the impact on you of the Windfall Elimination Provision.
Exceptions: There are several cases where switching to FERS and not being able to "lock up" your Social Security benefit are not a problem. One is that you're not interested in earning a Social Security benefit because you want to avoid having your spousal Social Security benefit reduced by the Public Pension Offset.
In addition, if your reason for transferring to FERS is to take advantage of its more flexible rules about when you can receive your benefits, then eligibility for Social Security benefits may not be a concern to you. For example, if you work in an agency that is downsizing, FERS more flexible rules may be very important to you.
If You Are Unable to Contribute Enough to the Thrift Savings Plan
The Thrift Savings Plan portion of FERS can provide a valuable benefit if you're able to contribute to it. If you're not, switching to FERS can be a mistake. Here's what could happen if you don't carefully consider how much you are able to save, or if you don't decide correctly.
Example: Suppose you transfer because you think the growth potential of your Thrift Savings Plan account can allow you to retire from the Federal Government with a larger benefit under FERS than under CSRS.
You're counting on your agency contributing an amount equal to 5% of your basic pay each pay period. To get that rate of agency contribution, you know you have to contribute at least 5% of your basic pay each pay period.
After you transfer, you find that you miscalculated your ability to save and your budget will not let you make any contribution to the Thrift Savings Plan. All you're able to get is your agency's contribution equal to 1% of your basic pay each pay period.
If you are not able to begin contributing to your TSP account soon after you transfer to FERS, your benefit will probably be significantly less than the benefit you could have received by retiring under CSRS. If you are concerned about whether you can participate adequately in the Thrift Savings Plan, you may want to review your financial situation carefully to see what level of savings you can expect to be able to make.
If You Should Die Soon After Choosing
It is not likely you will base your choice of retirement plan on the possibility that you may die soon after choosing. However, if you are married, you should be aware that you must have 10 years of service before your spouse can receive a survivor annuity under FERS.
You must have also earned the minimum number of Social Security credits required before your survivors can receive Social Security benefits if you die. The number of credits required depends on when you were born and how old you are when you die. The least number of credits required is 6 credits or 18 months.
Whether you are under CSRS or FERS, all Thrift Savings Plan contributions, including the Agency Automatic (1%) and Matching Contributions, will be paid to your beneficiary (or beneficiaries).
Survivor benefits are discussed further in the section on Survivor Benefits Under CSRS and FERS and in the Social Security section.
Summary of Situations That Could Make Switching to FERS a Problem
You've now seen some factors that could make transferring to FERS a problem for you. They are:
- Switching to FERS and then being unable to earn the 40 credits needed to qualify for Social Security benefits;
- Switching and then being unable to contribute as you had planned to your Thrift Savings Plan account;
- Dying before you've earned adequate Social Security coverage for your family to receive FERS and Social Security survivor benefits.
If you believe any of these factors are likely to apply in your case, you may decide to minimize your risk by staying in CSRS.
previous next 
U.S. Office of Personnel Management 1900 E Street NW, Washington, DC 20415 | (202) 606-1800 | TTY (202) 606-2532